Qualcomm may be most affected by Huawei-SMIC collaboration, says DIGITIMES Research

Luke Lin, DIGITIMES Research, Taipei 0


If Huawei can revive its handset business by rolling out more 5G and other handset-related chips with support from SMIC's 14nm and 7nm manufacturing capability, Qualcomm and MediaTek will be negatively impacted, particularly the US chip vendor, DIGITIMES Research believes.

Huawei has recently started accepting pre-orders for its Mate 60 Pro smartphone that runs on its in-house developed 5G processor. It seems to be a breakthrough for the Chinese vendor since the US government imposed strict trade sanctions on Huawei in 2020.

Since September 2020 Huawei has been barred from contracting with TSMC and other foreign foundry services to make its in-house-developed chips. Other IC vendors and IDMs are also required to obtain US permissions before shipping any semiconductor components to Huawei.

Huawei reportedly had aggressively stocked up components before the sanctions took effect, but its stocks could not last long.

Qualcomm, Intel and other semiconductor firms managed to convince the US government to make some concessions to its Huawei ban. Since the fourth quarter of 2020, the US government has been granting various permissions for shipping semiconductor components to Huawei, and the strictest ban has been applied to only chips related 5G and high performance computing (HPC).

The US firms that lobbied the US government for relaxing the Huawei ban were mainly trying to avoid losing orders from such a big customer. However, Huawei's woes would not lead to a shrink in total demand in the market. Its market share would be taken over by competitors who would still need support from components suppliers.

Huawei's handset shipments have nosedived thanks to the US sanctions. Its handset shipments peaked in 2019 reaching more than 200 million units, with a global market share of 16%. In 2022, it shipped only 20 million handsets for a meager global share of merely 1.7%. Huawei, subsisting on 4G chips from Qualcomm, has barely survived in the handset market.

What Huawei has lost in the handset market has been divided mainly among domestic competitors, Oppo, Vivo, Xiaomi and Honor, and the US giant Apple. The four Chinese handset vendors have seen their combined market share rise to almost 40% in both 2021 and 2022, compared to slightly over 20% in 2019. Apple has mainly taken over Huawei's share in the high-end handset market, with its overall share rising to 20% from 15% during the same period.

Before it was hit by the US sanctions, Huawei's handset processors mainly came from its own chip developing arm, HiSilicon, with small portions coming from Qualcomm and MediaTek. From 2019 to 2022, Oppo, Vivo, Xiaomi and Honor did not have their own processors, and they mainly relied on solutions from Qualcomm and MediaTek; and Apple adopted Qualcomm's baseband chips for its iPhones.

If Huawei can actually revive its handset business by leveraging its in-house-developed chips to launch more 5G smartphones, it might be able to gradually retake its lost shares from the major competitors. Such a scenario is quite possible, judging from the fact that the Chinese market is prone to see patriotic purchases.

What it would mean for Qualcomm and MediaTek is that their major customers would lose ground in the handset market, resulting in less demand for their chip solutions. Qualcomm would take an extra hit because of reduced demand from Apple for its baseband chips.

The irony is that the lobbying efforts made by Qualcomm, Intel and other US firms on behalf of Huawei seem to be coming back to haunt them.

Had it been denied any meaningful support from components suppliers over the past three years, Huawei might have terminated its handset and other end device businesses, ceasing any efforts to stage a comeback in the handset market with its own 5G chips.